The week started with a sharp drop. That was actually a good thing to happen. The market needed that. In fact, it would have been good had we seen a few more stiff down days. A real Bull takes a Bear's disrespect poorly. A real Bull comes back raging upwards when sufficiently insulted.

Take a good look at the DJIA from 10 Feb to 09 March in the chart below. The Bear ate the Bull's lunch! Look at the pathetic charges of the Bull, and the crushing counter punching of the Bear. That got the Bull really mad! After the 09 March bottom, look at the market upward lunges. They were huge! The Bear basically got out of this raging Bull's way. However, after 26 March, the Bull became a contented cow around the 8000 line. That was a month ago. The news that the DJIA has its biggest 4 week bounce since 1938 is now very old news and should be put aside.

No one knows what is going to happen. That especially includes Mark J Lundeen! But for the reasons I've laid out since last October, and again in Wk 80 below, I think this Bear is still a young Bear. With time, he will grow stronger. So if the Bull is going to take out the 8400 line, (BEV -40% Line) he is going to do it soon or not at all.

Below is my volatility chart comparing 2007's 40 & 200-day moving average closing price volatility with 1929 bear market volatility.

The 40 Day M/A is going down. It never intersected the 200 Day M/A. We can blame the contented cow on the DJIA's 8000 line for that. The 200 Day M/A is now at 2.12%.

We also saw one 70% A-D day this week, Monday.

These big days in breadth used to come once every couple of years, now we see them almost weekly. And 3 of the 5 trading days this week were 1% days, with one 3% day on Monday. Historically, such a week would be one of extreme volatility. But with this Bear Market, seeing a series of 1% days is like taking a rest.

If you're in the market, enjoy the peace and quiet while you can. This weekend saw the lights in the US Treasury and Federal Reserve buildings burning long into the night. The Bear must be wondering what tasty snacks Bernanke and Geithner are preparing for him. He's not fussy. No more so than the accounting standards being applied to the big bank's earnings reported last week.

Note: 2007 values are actually positive. They were inverted so 1929 would fit on top and 2007 on the bottom. So for 2007, please forget the negative valuations and focus on the percentages.

Historically, daily 1% swings from the previous day's closing price in the DJIA, while not uncommon, should not occur on an almost daily basis. The stock market is running a fever with its "Persistent, Extreme Volatility."

This market could go much higher. But when money is on the line, investors have to do a gut check now and then and judge how much risk is in the market place. My gut check tells me that we are more likely to see 7500 on the DJIA before we see 8500. I could be wrong. But if you look at charts long enough, you start seeing things many people miss.

Take a look at the Blue Plot for the DJIA above. Since this Bear Market started in October 2007, there are few periods where the DJIA just sat at a level for a month doing nothing. But when it did, big moves followed the pause. So, I'm expecting a big move coming our way. If the DJIA goes down to 7500, it could be bullish, if it turns around with vigor. If it briskly moves down to 7000, we might see the DJIA becoming a BEV -60% Bear by June.

That's something I could live without. But the lights are on in the Federal Reserve and US Treasury buildings long into the night. They have their meat hooks deep into the financial markets to prevent the Bear from snatching it away from them.

Bernanke and Geithner are not looking out for investors. They want to protect their power base. If they wanted the Bear to go away, they would stop pretending that a few trillion dollars in toxic assets could be made viable again. They only need to allow the Bear to eat the garbage left over from the last Bull Market in real estate. Instead, they keep generating new financial garbage that will only keep the Bear around longer than is necessary.

The more trash they toss around with their "Stress Testing" or derivative maneuvers, the stronger the Bear will get. It's a Bear Market. In Bear markets, the Bear ultimately wins.

The Step Sum is an indicator of market sentiment. When the underlying sentiment is bullish, the Step Sum will rise. When bearish, it falls.

Think of the "Step Sum" as the sum total of all the up and down price "steps" in a data series over time; an Advance - Decline Line for a data series derived from the data series itself. Logically, bull markets will have more net up days while bear markets will have more net down days. Understanding the Step Sum is no harder than that.

Why would anyone open an account with a brokerage to buy stocks? The answer is always the same: to make money! And making money by purchasing stocks is either by capital gains or dividend income. However, that choice is not made by the investors themselves, but by the "policy makers."

As I mentioned last week, when an economy is under the assault of monetary inflation, this "liquidity" has two channels where it can flow. Liquidity" can flow into Consumer Goods and Services, or it can flow into Asset Valuations. When inflation is flowing into assets, chasing rising asset valuations in a hot stock is the logical method of making money. Inflation actually punishes prudent money. Seeking investments in solid companies spinning off actual profits to investors is a break-even game at best when "liquidity" is flowing into the financial markets. This is exactly what happened during the Greenspan Fed era.

He successfully channeled his "liquidity" into the financial markets and away from CPI Inflation. So asset values soared, as CPI Inflation remained constrained. Greenspan's "monetary policy" crushed dividend yields to unthinkable levels. By 1998, no one was in the market for dividend income.

The extreme bottom in stock yields was hit in the first quarter of 2000. The 13 March 2000 issue of Barron's has the DJIA yielding only 1.40% while the NASDAQ Composite was up 111% in only 52 weeks! But, when the flows of "liquidity" shifted, the NASDAQ was devastated.

Nothing lasts forever. This is especially true for Bull Markets fueled by "liquidity." So, when inflationary flow shifts its channel away from asset valuations, there is only one other place for "liquidity" to flow: CPI Inflation.

Are there any creditable market strategists who seriously consider the possibility that the DJIA will go to a new all-time high sometime in the next 5 years? If so, I don't see them in the media. So why are people still purchasing stocks? With most investors, the stock market has become a bad habit from the Greenspan bubble years. They lack the imagination to see the possibility that we may have entered an extended period of time when capital gains will cease being a reason for purchasing common stocks. Look at the DJIA from 1966 to 1983.

Currently, we find ourselves in a transitional period where the Fed's monetary inflation has ceased flowing into the financial markets. But then, since last October, it hasn't been flowing into Consumer Goods and Services either. Amazingly, the "policy makers" have found a third inflationary channel for their "liquidity." The bright lights of Harvard and Princeton are filling a Rat Hole in Wall Street with load after load of low grade, but very expensive TARP.

After pumping a trillion or so dollars of TARP into this Rat Hole, we have seen no significant effect upon the markets. You would think, filling this Rat Hole on Wall Street is pointless, but it isn't from a "policy" standpoint. Pumping TARP into the Rat Hole is only intended to make good the counter-party obligations of "un-named favored financial institutions" incurred from the Congress' "policy initiative" on housing. So, Washington only needs to pour enough "liquidity" into the Rat Hole to make whole the connected political interests of the US Treasury and the Federal Reserve. With this done, Washington will allow the derivatives market, pension funds, insurance companies' reserves and IRAs & 201K to deflate unhindered. At least that seems to be the plan.

If the "policy makers" are to preserve their power, they have no choice. The derivative markets have a notional value of over 600 trillion dollars! The Milky Way and Andromeda galaxies combined have only a few trillion stars! So, for the "policy makers" it's either the big banks or the citizens of the United States. President Obama and the Congress have made their choice, and it's not us!

And for the record, allowing the derivatives market to deflate unhindered will not be the event that destroys American capitalism. The key event occurred during the Clinton Administration, when Dr Greenspan and President Clinton's Treasury Secretary Robert Rubin testified in congress that the derivatives market must not have government supervision or regulation.

Consider the following. The Federal Government regulates the type of oil used in making popcorn at movie theaters. But then these corrupt lawyers pass up a chance to regulate the largest financial market in the world? How did this happen? With few exceptions, America's politicians are the best money can buy!

The table below could be the future of your IRA or 201K. The range of possible dividend payouts is on the left; dividend yields are on the top. The value of the DJIA at any given payout and yield is at their intersection. Bull Markets are irrational beasts, while Bears are logical to an extreme. I high-lighted the 6.0% DJIA yield. as historically all Bear Market eventually terminate somewhere above a 6% yield. It's frightening to see that our #2 all-time DJIA Bear Market yielded only 4.74% when it closed at 6547.05 on 09 March 2009.

If history is a guide for what is to come, this Bear will force the DJIA to yield over 6%. That would mean that we will see a BEV-60% Bear before a bottom is possible.

Note that we saw double digit CPI Inflation in the 1970s. And the DJIA's Dividend Payout fell by over 70% during the Great Depression. So historically speaking, any value in the above table is a possibility.

Note also that it's a possibility that we could die from a meteor falling on our heads too, but that is not likely. So let's examine what is probable in our present circumstances.

Let's look at the prospects for inflation with the Chart Below.

I like using CinC. CinC is just the money in our pockets. And during times of inflation, CinC will go up.

I admit there are problems using it. During the 2002 to 2008 period, CinC's rate of increase decreased to zero. This was also the time span when the "policy makers" were blowing up a massive inflationary bubble in the mortgage market. Well, who ever walked away from a house closing with a bag filled with $300,000 in cash money? Mortgages are a bank-check event. And, from 1990 to 2007, credit cards became the primary form of payments for goods and services for many people. In the past 20 years, cash's role in the economy has decreased significantly.

But the housing market has cooled down, and banks are currently closing credit card accounts to deeply indebted consumers. So CinC may again become a key monetary index to monitor CPI inflation as people once again use cash, not credit cards, to pay for their Egg McMuffins in the morning.

Anyways, as this is a Bear Market Report comparing the 1929/32 Bear with the 2007/09 Bear, and since I have CinC data going back to the 1920s, there is a benefit with using this data to see how "policy" used CinC in these two Bear Markets, and the times in between.

The first big spike was in 1931, so we can't blame that on FDR. But FDR did print massive amounts of money for WW2. The dollar saw massive losses in its purchasing power from this WW2-CinC inflation. I'm happy we did what was necessary to win WW2. But my point is that inflation, for whatever reason, erodes the dollar's purchasing power. The WW2 Inflation hurt people.

The gangster movies of the 1930s starring Bogart, Cagney and Robinson all had one thing in common: with "10 Gs, a mug could retire in class." $1,000 = "a Grand" as $1,000 * was * a grand sum of money. So "10 Gs" = $10,000. But, the WW2 CinC inflation changed all that forever. Any "mugs" or retired couples who lived on their "10 Gs" before the war went back to work after it.

The historical period where the US saw double digit CPI inflation occurred from the mid 1970's to about 1982. Look at the charts above and below. CinC's annual increase was pegged at 10% during this period. The CPI Index soon followed. And now CinC, after falling for almost 8 years, has just recently jumped up to this same 10% year over year increase line that caused so many inflationary problems 30 years ago.

Below is a chart for CPI Inflation, data from the St Louis Federal Reserve.

Considering energy prices of a year ago, I can understand why CPI Inflation is down significantly. But see how these huge flows of "liquidity" are avoiding Asset Valuations in the financial markets. CPI Inflation of 0% will not last long. And I don't trust CPI data anyway.

But what about the DJIA's dividend payouts? The chart below tells us all we want to know about dividend payouts from 1939 to 1969.

The Green CinC plot from, 1939 to 1945, and the above chart of CPI Inflation shows us why "10 Gs" failed to finance much of a retirement after WW2. Also, note how capital gains and dividend payouts lagged inflation for 10 years.

The chart below is the same data brought up to date.

Again, note how capital gains and dividend payouts lagged inflation for 10 years after the surge of CinC inflation of 1971. One might argue that the 1982-2000 DJIA Bull market was actually the real economy's attempt to catch up to the inflation of the 1960s - 90s. If this pattern holds for the 2007/09 surge of CinC inflation, stock values, earnings and dividend payouts will be woefully sub-par for a decade or more.

In fact, this chart suggests that "liquidity" is avoiding financial assets right now, exactly as it did in 1941 & 1969. The DJIA lagged CinC after 1969 until it caught up with it in 1999/2000, and then the DJIA fell. During the 2007 rebound, the DJIA never caught up with CinC. Since 2007, the DJIA has seen the second-worst bear market since 1885! The Barron's 50 isn't doing well either. But note that the Blue and Orange plots for dividend payouts have not been affected, even after two bear markets since 2000.

Unfortunately, corporate earnings are currently crashing. And without earnings, how long can the DJIA, Barron's 50 and the S&P500 companies continue to pay dividends?

I expect to see big cuts in dividend payouts within a year. But short term, I wouldn't be surprised to see these indexes maintain their current valuation with a decrease in payouts. Such a situation would result in smaller dividend yields. If the market doesn't care about yields, or earnings, there is nothing stopping people from bidding up the DJIA or the S&P 500 with negative earnings. That actually happened from July 1932 to July 1933. But the DJIA had a dividend yield of 10% in 1932; it's now less than 4% in April 2009.

I don't think dividend yield considerations will become a factor until the US Treasury Long Bond yields start to rise in response to CPI inflation. Gasoline at $7.00 will also focus investors' attention on the need to increase their income to offset the insane inflation now being let loose. I expect retail investors will learn by then that the bond and stock markets will no longer be a place to "make money."

The US Treasury Bond market is in a bubble. One day the yield on this 30 year Treasury Bond is going to rise higher than most "experts" believe possible. The chart below is one chart not allowed on the "policy makers" network of choice, CNBC.

A 6% or 7% yield on Feb 2036 @ 4.50% is going to focus people's attention on the loss of the dollar's purchasing power and rising consumer prices. I don't see how the stock market can avoid the shock waves if the Treasury Market goes into a crisis. The same will be true for Gold and Silver. But I expect a different reaction altogether.

Dow Jones -40% Declines From 1885 to 2008 is the article that inspired this race of 1929 & 2007 Bear Markets. You may want to read that article to understand my "BEV Chart."

Dow Jones Industrials Average Market Volatility is the source for my volatility studies.

The Lundeen Bear Box and Step Sum is the source for my Lundeen Bear Box and Step Sum Chart

Note For the Record: Mark Lundeen does not want a devastating bear market in the next two years. However, in full view of Congressional Market Oversight Committees and under the supervision of Government Regulatory Agencies, things were done that I believe will make a historic bear market inevitable. If you have a problem with this bear market, contact Washington, not Mark Lundeen.